Drag-Along Rights

TL;DR

A provision allowing majority shareholders to force minority shareholders to participate in an approved sale of the company on the same terms.

Drag-along rights let the majority of shareholders (or a defined supermajority) compel the minority to vote for and participate in an approved sale. Without drag-along, a small holdout could block an acquisition or extract a side payment.

The definition of 'majority' varies — some drags require both common and preferred majorities, some require board approval, some require a minimum acquisition price. Drag-along is standard in modern term sheets and rarely contested.

Worked example

Founders own 60%; investors own 35% with drag-along that triggers on majority-of-preferred + majority-of-board approval. In a $300M acquisition vote, even if a 5% common holder objects, the drag forces them to sell on the same terms as the majority.

Common pitfalls

• Letting drag-along be triggered by too small a majority.
• Failing to coordinate drag terms across multiple share classes.
• Ignoring drag in early SAFE side letters.

When this shows up in a pitch deck

Diligence content; not on the deck.

Related terms

• Tag-Along Rights — The right of minority shareholders to join a sale by majority shareholders on the same terms, preventing 'cherry-picking' liquidity.
• Term Sheet — A non-binding document outlining the principal terms of a proposed financing, used to align investor and founder before legal documents are drafted.
• Preferred Stock — The equity class issued to investors, carrying special rights such as liquidation preference, anti-dilution protection, and protective covenants.
• Right of First Refusal — The right of the company or existing investors to match any third-party offer to buy shares before the seller can transfer them externally.
• Common Stock — The base equity class held by founders and employees, with voting rights but no preference rights or dividends.

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